Canadian Apartment Properties Real Estate Investment Trust (CAR-UN) Q1 2026 Earnings Call Transcript

Hello everyone and thank you for joining the Canadian Apartments Property Rate First Quarter 2026 Results Conference Call. My name is Claire and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to Nicole Dolan, Investor Relations at Canadian Apartments Property Rate to begin. Please go ahead.

Thank you, Operator, and good morning, everyone before we begin let me remind everyone that during our conference call this morning we may include forward-looking statements about expected future events and the financial and operating results of capri which are subject to certain risks and uncertainties we direct your attention to slide two and our other regulatory filings for important information about these statements i want to turn the call over to mark kenny president and ceo thanks nicole and good Good morning everyone.

Joining me this morning is Stephen Koh, our Chief Financial Officer. Before we begin, I'd like to take a moment to personally announce my retirement as President and CEO of Capri. And I am pleased to announce Brad Cutsey as my successor, effective July 2nd. I have greatly enjoyed the nearly 30 years I have spent with Capri and would like to express my sincere gratitude to everyone, past and present, for their collaboration and partnership. Brad brings substantial leadership capability and public company expertise. With 30 years of experience in real estate and capital markets, I am confident that under his leadership, Capri is in good hands and well positioned for the future. And with that, it is my pleasure to be here with you today on my final conference call to present one last update on Capri's performance. Let's begin on slide four and walk through some highlights from the year so far. In 2026, we've completed 45 million dollars worth of asset repositioning in Canada. We've also sold 143 million of properties in the Netherlands through April 2026. Following that, on May 1st, Capri closed on the privatization of European residential REIT, acquiring all publicly held units not already held by CAPRI for $99 million. On our NCIB, we've repurchased and cancelled $42 million of our trust units at a weighted average price of $37 per unit, which represents a substantial discount to our NAV of approximately $55 per unit as of March 31, 2026. Operationally, despite current pressures impacting the broader multi-residential sector, Capri continues to perform well. On our same property residential portfolio in Canada, occupancy was 97.1%, while occupied AMR grew by 2.9%. Combined with the ongoing improvements to cost control and procurement efficiency, our same property NOI margin in Canada expanded to 62.2% for Q1 2026. With a decrease in fair value of our investment properties this quarter to reflect softer market conditions, our total debt to gross book value ratio increased to 40.3%, a level we still consider conservative and on target. Turning to slide 6, you can see how our portfolio composition has evolved. Today, the majority of our portfolio is concentrated in core assets complemented by immediately constructed properties which help capital requirements and improve operating efficiency. In addition, given the high quality and exceptional locations of these buildings, they offer strong upside potential once supply-demand dynamics normalize. We also maintain flexibility through a smaller allocation of non-core assets which supports ongoing capital recycling. This balanced mix enhances the resilience of our platform and drives more stable performance through varying market conditions. With that, I'll turn it over to Stephen to walk through our operational and financial results for the quarter.

Thanks, Mark. We'll start with operational performance across our Canadian residential portfolio as shown on slide 8. Our occupancies have held up well given current market conditions with 97.1% occupancy as of March 31st, 2026. While modestly lower year over year, this compares favorably to industry benchmarks. You will also see here that occupied AMR has increased, as Mark mentioned. On the total Canadian residential portfolio, it grew by 3.3% to 1732 as of March 31st, 2026, compared to $16.77 on March 31st, 2025. This rent growth is supported by renewals and the positive mark-to-market opportunity embedded across much of our portfolio. However, it also reflects turnover that remains weighted toward shorter-term leases, which are trending on average above market. Let's turn to slide 9 and dive deeper into that dynamic. As we've discussed previously, turnover continues to vary by lease tenure. You can see the breakdown on this slide, with approximately 45% of our turnover in the first quarter coming from residents who have been in their units for less than two years. These leases turn at an average loss of lease of 10.8%, reflecting ongoing pressure from shorter tenure leases that are turning over below prior peak rents. The remaining 55% of turnover came from all other lease tenders, from two through to 10-plus years, where we achieved an average uplift of 5.7%. Together, this resulted in a blended change in monthly rent of negative 2.1% for the quarter, reflecting the overall impact of current market conditions across the portfolio. As of March 31, 2026, 28% of our leases had a tenure of less than two years, with average monthly rent per square foot of approximately $2.60. This segment remains subject to higher turnover as market rents have declined. In contrast, longer tenure leases carry lower in-place rents, which continue to support embedded upside across a large proportion of the portfolio. Given current conditions, we expect the elevated turnover among the shorter tenure leases to persist in the near term, as higher in-place rents reset to market. At the same time, longer tenure leases should continue to generate positive uplift on turnover, even in a softer environment, providing an important level of downside protection until supply-demand conditions return to balance. Referring to slide 10, with the dynamics just described, our same property operating revenues in Canada grew by 1.1%. On the expense side, same property opex decreased by 0.5%. This reflects lower natural gas expense following the federal carbon tax removal that came into effect on April 1st, 2025, as well as a 0.5% reduction in other operating expenses driven by our continued focus on cost containment. With that, same property Canadian NOI grew by 2% and our margin expanded to 62.2% for Q1-2026. Diluted FFO per unit was up by 1.7%, driven mainly by accretive impact of trust unit repurchases under our NCIV program, along with growth in the same property NOI, partly offset by lost NOI on dispositions. On slide 11, we've summarized our financial position with a well-staggered mortgage renewal portfolio that has no more than 13% of Canadian mortgages maturing in any single year and a low-weighted average mortgage interest rate of 3.3%.

We also have $124 million of available liquidity in Canada at period end, providing capacity to continue pursuing accretive opportunities on that note i will turn the call back over to mark thanks steven before wrapping up i want to quickly highlight slide 13 which has some key takeaways from our 2025 esg report recently released we've made solid progress across our esg priorities in 2025 with these efforts supporting our ability to deliver long-term value for investors while also contributing positively to the communities we serve. I'd encourage all stakeholders to review the report for more detail on our achievements and ongoing commitments. With that, I'd like to take your questions. Before doing that, I just wanted to take a moment to thank CAPREIT's Board of Trustees that have been exceptionally helpful through my transition process. And I would also like to thank the incredible team at Capri that's been built over the years. We have a group of really talented, highly exceptional, highly dedicated people that investors should take comfort in the fact that you've got a great team supporting your investment. With that, happy to take any questions.

Thank you. To ask a question, please press star followed by one on your telephone keypad now.

If you change your mind, please press star followed by two when preparing to ask a question please ensure your device is unmuted locally our first question comes from jonathan culture from td cowan your line is now open please go ahead thanks uh good morning and mark congrats on a on a great career at cap read and all the best in your retirement uh certainly going to be big shoes for brad to fill thanks jonathan um first question just on the the occupancy you you guys uh did manage to stay above 97 which is pretty good achievement but how how's it trended so far in in q2 well i can comment

on the market in general um more so than specifics on capri but what um we're hearing out there is cautious optimism that the market is showing up. It was a very cold winter. There's always that seasonal effect, but we definitely saw the correlation with the listing of weather as others have reported also. The market is there.

I wouldn't read too much into that, but definitely we've seen improvements that are that are expected seasonally okay so so kind of cautiously optimistic on the on the spring leasing season is that fair yes yeah like as is reported and things like you know rentals.ca our favorite benchmark uh cautiously uh okay fair enough and then um slide nine um you guys you added in the the rent per square foot which is which is good info and thanks for that where where would you say your um average market rents are right now where do they kind of fit in that uh in that slide i mean i mean if i look at it just on a blended basis jonathan um i mean the market market i would say in the in the plus teams it would probably be 10 to 15 is what i estimate okay that uh We can work with that and then and then lastly just and we've seen this with with with your peers, but how much of a difference are you seeing in demand at the different price points in your in your portfolio.

There is steady demand for the legacy portfolio and the demand for newer construction is very dependent on the price per foot. The product that's struggling the most in the market, not necessarily cap rate, is the plus $5 a foot is reported across the country as having a challenge. But where we've purchased buildings that are well located in that sort of affordable range of less than $3 a foot, there is decent demand. Okay.

That's helpful. I'll turn it back. Thanks. Thanks, Jonathan.

Thank you. Our next question comes from Jimmy Chen from RBC. Your line is now open. Please go ahead.

Thanks. Just to follow up on that slide nine breakdown. So, in that 28% bucket, that's less than two years, would that be skewed to any particular market or is it representative of your entire portfolio, and would you say that bucket is consistent with the turnover rank growth that we've seen, i.e. 10%, potential 10% rolled down on the 260 rent?

Yeah, I mean, it's really skewed towards, you could say, more of a newer construction, but it also has some of the legacy assets that really achieved peak rents that now are turning over um i would say um within that 28 about 10 is close to market so you could basically say 18 has a higher propensity for it to turn over um just because those ones are going to be those rents are way above market so that has a higher propensity to okay um and then and then

On the margin front, obviously, we saw good improvement carbon tax this quarter. How do you think the margin is going to play out for the balance of the year? Are you expected to be fairly flat or are we still going to see some improvement from those cost containment?

Yeah, we're optimistic on cost containment. The work that's being done on capital improvements is definitely finding its way into margin improvement. The team is working extraordinarily hard to find efficiencies and they're doing so. And I think that with softening in the Canadian labor market, it's definitely helping on the on the pricing side. We're not in the high-flying days of COVID when you couldn't find anybody to work. There's good balance returning to the market. So we're feeling quite comfortable on the operating cost front and very optimistic on cash flow improvements with the new construction portfolio, really helping. So it'll all be a matter, Jimmy, of how rents evolve over the next couple of quarters. If we can hold our own, cost containment is definitely something that we're feeling good about.

Just last technical one for me, the current tax, Do you have any guidance on what that looks like for the year?

I don't have the numbers in front of me, Jimmy, and maybe we'll take this offline.

Okay, perfect. Well, that's it for me. Congrats on the retirement mark. We'll definitely miss your candid discussion on this call. All the best. Thanks, Jimmy.

Thank you. Our next question comes from Brad Sturges from Raymond James. Your line is now open. Please go ahead.

Hey, good morning. Just to go back to our favorite slide nine here, on the 18% of suites that have a higher potency to turn, and you said they're above market, how much above market on average would those particular suites be?

I mean, generally, if you see what we report on Q1, the less than two years is about 10%. I think that's a fair representation of what that 18%. Okay.

And given the cautiously optimistic tone, I guess, for the spring and summer, how do you think about the use of incentives from here through the remainder of the year at Yeah, I think in the case of Capri, the metrics to watch are occupancy first, incentive use second, and market-market rents third, with renewals being kind of a tie at the end but stage one for us has always been maximizing occupancy and we are seeing those seasonal improvements show up again it was pretty cold cold winter so it was nice to see the seasonal change that we'd expected but the incentive use through q4 and q1 as you know brad it gets amortized and and does build slightly and that would be our next line of improvement i appreciate that uh congrats mark on the retirement all the best thanks brad thank you our next question comes from kyle stanley from the stradden's group the lines now open kyle please go ahead thanks morning guys uh just want to echo the sentiments uh congrats mark on the great career

and you will be missed so um thank you just going into the questions yeah just going into the question so you know obviously we spent a lot of time on the short duration leases and the drag that's having on leasing spread as we're entering the spring here like in your view has that roll down kind of peaked i mean i think it kind of builds on what brad just asked stephen but it how does that trajectory look i mean i would say it's hard to tell i mean we're just getting the the april data um and spring leasing season obviously is in effect but um we're also we're

tracking the we're tracking the rent um we're hoping that we have seen a bit of the the bottom here but again i'm i don't know if that's going to be i don't want to call that i i also think there's potential work to come down a little bit more so um that part and it's hard for me to tell and and just to build on that for steven's benefit and for clarity of comments we've made the cold with q1 is always the most difficult quarter and i think the the weather that seized canada in q1 really what we did see is quite a dramatic drop in traffic coming to our offices Despite that, we fought the occupancy battle well, albeit with some rent deterioration on turnover and some incentive use, and it's been very refreshing to see those seasonal changes show up again in Q2, and that's reason for optimism.

That's also kind of what's being reported widely in the market, but it's more just the seasonal change. i would not read too much too much more into it other than it's it's it's refreshing to see traffic returning to the offices okay thank you for that um just again sticking with this slide it looks like the trend on at least the proportion of your turnover that's coming from those short tenured leases is going a bit lower at 45 today from you know maybe 50 over the last couple of quarters is that probably a good way to look at it and expect that to obviously continue a bit lower as you turn more of these is that the view i yeah i wouldn't i wouldn't i wouldn't use that

as extrapolation on what that would look like for the rest of the year i mean it could it could just be seasonal so we'll see but i mean uh i i don't i wouldn't look into that too too closely but i would say it would be you'll still continue to see 40 plus um in that short-term leases oh you make you make a you make a very distinct interesting point though that we will have to continue to kind of update the market on um with the newer construction portfolio what what remains to be seen given that those buildings do have higher turnover is this might be the profile of turnover that we have it's just the flow through impact of either covid leases or a softening market um but this is this is information we'll continue to provide um because i do think it's it's it's very helpful obviously slide nine is getting a lot of attention today yeah no agreed um it is uh very valuable i think in the work we're trying to do okay uh last one for me just higher level question if you had to point to some markets where you know the trends you're seeing today are more positive maybe than you would have expected you know which markets might those be yeah how you know we recently did a did a visit to halifax and uh it's it's holding up remarkably well like there are a lot of brains in the sky but uh we're definitely seeing strength um in that market i think um what i would be looking at as an investor is just the immigration trends around um foreign students in particular and that would have a probably a greater impact on cap rate than than our peers just given that we're trying to vancouver montreal where the universities, London, Ontario, and Ottawa, where we tend to have student populations. So that's something we'll be watching really closely. Immigration in general, and the absorption rate of the supply that's here, and blending that, as we've talked about, with just the starts, and do those starts get completed, and the outlook for what the deliveries are going to be like, as we all know, are very, very low going into the 24-month kind of horizon. So So things are, it's just putting all these metrics together at the same time. It's supply, it's population decline, and it's deliveries with an attribution to unemployment. And it's not deteriorating in the seasonal Q2 that we may have feared. It's a return to seasonal in Q2.

Okay.

Appreciate the colour. thanks thank you our next question comes from mario sarik from scorcher bank your line is open please go ahead hi good morning and uh mark i congratulate you on your illustrious career and wish you well in retirement as well well thank you yeah so uh just in terms of i apologize i joined the call a bit late so this may have been discussed uh if it has we can just move on but But the same-store revenue growth came in at just over 1% in Q1. Given what you're seeing thus far in the spring leasing market, which sounds like you're cautiously optimistic, do you still think that 26% can land in that 2% to 3% growth range, or can we expect it to be a bit more moderate than that?

Mary, I think where we're seeing Q1 is about 1.5% in terms of revenue growth, I think that's something that is within the range that we expect, and especially for the year. If we track OPEX growth for the remainder of the year, we did pretty well in Q1. A lot of it has to do with the carbon tax removal. But if we factored out the carbon tax on the same property basis, I think it would turn out to be about 2% on an OPEX growth basis. so um you know i think q1 we'll continue to achieve some cost containment uh initiatives throughout the year and so if you kind of blend that you know uh one to two percent revenue growth and maybe two to three percent opex growth i think that's kind of where we're we may land i think mary just to add um the capri portfolio will will mature into a more stabilized state this year that because of all the capital recycling that's happened including things like

e-res we'll get to a more stable predictable metric and so definitely the new construction is going to help us on on cash flow it's definitely helping on higher margins cost containment and again the efforts that the team are making around all areas of off costs and capex costs are very positive very very positive so it'll all be about rents what we said earlier in the call that will determine uh you know margin margin growth and um the we've got the best team we've ever had to handle this particular situation the best team and best portfolio that you've had as

well um the so the in terms of the incentives so q2 should be a bit more active in terms of actual leasing relative to q1 with that said do you think the absolute amount of incentives being offered has peaked in q1 i think what what the data we're seeing um mario i think uh yeah i think that's a fair comment uh it did peak in q1 a lot of incentives were given in q1 um which doesn't actually it shows up later on uh because when the lease starts but yes i think

we've seen we've seen the peak and my last one uh just in terms of i know a lot of the heavy lifting position side has been done uh is there a range outside of the netherlands so canada specific is there a range that you're targeting for the rest well like we have done the heavy lifting you know our all of our backs are uh under strain from the heavy lifting but uh i look forward to uh to brad um sharing with the market comes next and uh he's been exceptionally complimentary of the strategy but i would uh hold on for guidance with uh with brad and um it's only fair to him that would be my only comment it's up your back congratulations again thanks mario thank you our next question is from matt cornick from nation bank financial your line is open please go ahead i'm i'm not sure what that bank is but um i i want to reiterate

reiterate what my peers have said uh i've always appreciated your passion for the business and it it shows through so um anyway turning to the the operations um on on that one and a half percent growth in revenues is that assuming stable occupancy i guess to where you were in q1 and if you could give us a sense maybe as to where april and may have trended on the occupancy front given your comments that that's the leading indicator that would be interesting yeah um so Matt I mean yeah I mean it is looking at it on a stable occupancy basis obviously we're not

providing information around April but I would say in the general market we have seen higher foot traffic and I think you know there is a more cautious optimism around leasing so you can take that as probably a slight improvement in occupancy for us we look we look primarily at traffic to the offices and then conversion rates so it's really what was um what was clear that the whole industry is the q1 just a very very slow velocity rate of people visiting

offices to to make decisions and we've seen that seasonal improvement which allows conversion rates to kind of deal with the occupancy so um again maybe a bit of uh concern just with what's going on in the world and uh this spring is where we could be making decisions but there's definitely an increase in uh in visitors to the to the site for everybody you know that's that's been reported kind of across the industry yeah that makes sense yeah your peers i think also a little bit of incremental occupancy improvement into the spring and obviously we dealt with a pretty disgusting January and February in terms of the weather.

So that makes sense. I guess the key thing, I guess, from here, I mean, there's all this nuance in terms of the turnover in the two-year cohort, but some of those guys have already got a rent discount, it's been renewed a year ago. But where do you think market rents head? I guess that's what the key driver is going forward at some point.

Oh, you mean that inflection point? so that's that's the question on everybody's mind um yeah again the way i would try to think about it it's a little bit complicated but i keep saying it is the way cap rate is organized is first it's occupancy second it's incentives third it's mark to market rents with renewals so the first line of defense for us has always been maximizing occupancy and that that will help of cash flow. And the improvement that I think is most important really to get early glimpse is use of incentives. And then you'll see mark-to-market rents follow. So it's a bit of a convoluted answer, Matt, but that's exactly how it works. So we're very much focused on being occupancy maximizers, always have been. And I suspect that Brad will follow the same formula and we're feeling at the market. But what I keep commenting on is I am quite astonished that given what's happened to population decline and supply deliveries, how resilient the Canadian multifamily market is, it just doesn't seem to match the stats. And that's a testimony I think to Capread and our peers in terms of buying well-located multifamily. And if its location's right you can kind of beat the statistics and and we've done a very i think a very good job of picking good property in great locations and so we should we should beat the overall trend with those decisions so if the market is resilient and and the the last point that i would make i think i may have made it on the last call is that we we must remind ourselves of what's happened in other countries where you've seen a bit of a housing price correction, and the rental market always gains fuel in that environment. We don't appear to be in that stage quite yet, but that will be the first indicator. As Canadian home prices come under pressure or come under more uncertainty, we would naturally expect to see the rental market benefit. So that could be an event sooner than anticipated, but we're not giving clarity on that event. Nobody's sort of seeing that yet, but we're sort of anticipating what's going to happen. But there's just so many different metrics that we've never faced before. Population decline and supply.

Yeah, no, that makes sense. And we talked about it last time as well. Some of my associates still with their parents and their husband household consolidation. So I think there's pent up demand at some point uh if the labor market improves and just maybe quickly on another point though on the student side when when would we anticipate seeing that uh trend in terms of uh those those guys signing for kind of august uh leases because it looks like on the on the stats that the government puts out the student population has been kind of stable at this point and it's not declining so yeah Yeah.

If there's an uptick in policy change there, then that effect you would see in Q3.

Awesome. Well, thanks again. And hope to chat in the future in whatever role you eventually take or in retirement. Take care. Take care.

Thank you. Our next question comes from Sairam Srinivas from ATB Cormac Capital Markets. your line is now open. Please go ahead.

Thank you, Abriza. Good morning, guys. Mark, congratulations on a great career, and all the best for the journey ahead. Thank you. I just had a question on slide six, I guess, so I'm stepping away from nine now. Let me have a steady portfolio repositioning. I know about 19% of these assets are newly constructed.

Would you guys track internally as to what the margins from these would be versus the overall portfolio well the margins for the new constructed um i don't know if we've given there's obviously higher because a rents are higher and secondly pasture utilities are are there um so they're just naturally higher margins for those two reasons um and that will continue to kind of help mitigate any sort of utility cost increases and and and the like so that's we like about about those assets is they're more inflation protected and our strategy has been around buying in that upper middle part of the market less than 350 a foot and we consider that to be the mass market and we've been able to buy some great properties and great locations that will be resilient as we just talked about that'll support higher higher margins and obviously you you know, plays heavily in the Capri cash flow store.

That makes sense, Mark. And maybe just going back to your comment on, you know, how healthy the private market seems and there's an appetite for apartments there. You know, considering how soft public markets have been, are you actually seeing more volumes in the private side and more participants coming in to actually now buy apartments?

Yeah, like the trend, the noteworthy trend that we're hearing from brokerage, And we've had inbounds is a very, very large appetite for what we would call our core portfolio, legacy assets, definitely apartments that would fall in that, call it affordable range, fair quotes. That's where the capital seems to be orienting itself. We are actively in the market and actively losing bids on assets, which is a good sign in terms of holding up value. So the print on some of the trades that have happened that have come out recently would have been trades that would have been executed or negotiated six to eight months ago. and the valuation in terms of what we're seeing in the competitive market on assets that we're bidding on is very very competitive so there seems to be this ongoing disconnect between the private market and public markets but the valuations at the asset level are alive and well that's it thank you so much all the best for the future i'll turn back thank you thanks so much thank you our next question comes from dean wilkinson from cibc your line is open please go

ahead thank you uh hi guys mark your candor your candor your honesty and your knowledge are going to be sorely missed um maybe i could just get personal for a minute you look back over the past 30 years of your career you've seen a lot what's kind of the biggest thing you can say has changed over that time, and what advice would you give to the generation that's going to follow you?

Well, Dean, thank you for those very kind words, and it's always, I get excited when you come on the line. The institutional sort of nature of apartment ownership is the biggest change. It was a mom-and-pop business. It was, you know, what they would call the dirty cousin of real estate when in apartments people didn't really want to get involved because the management was intense and you know dealt with people face-to-face takes a certain kind of person to be in multi-family without that was the opportunity so like the advice that I would give anybody out there like seeking a career in real estate is apartments offer an incredible opportunity for somebody that really wants to get involved in business that is an ever-evolving, ever-institutionalizing part of real estate. And they're highly sought-after skills. And, you know, it's the old school thing. If you have work ethic and common sense, you can go a lot of ways in multifamily. And that would be my advice. And I found it an incredibly rewarding career because of how many people that I've encountered that have sort of stumbled into the sector and have just had incredible careers. And there's lots of examples of that at Capri. So, yeah, that would be my advice. It's a sector that's institutionalizing. Demand is extremely high for skills. If you've got work ethic, if you've got some financial acumen, and if you've got discipline, you'll have a wonderful career.

Thank you for that. I can say that I am smarter for having known you. I look forward to seeing you in your retirement. Thanks for everything, Mark. Thanks, buddy.

Thank you. We currently have no further questions, and I would like to hand back to Mark Kenny for any closing remarks.

Well, that was a very nice way to end. I'd like to thank everybody for your time today. It's truly been my pleasure to be a part of this great company, and I'm excited to see what will come for Capri in the future, in the years to come, and I will be there on the sidelines to help if you need me. Thank you very much and goodbye.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect.